Why Germans Pay Cash …

… for Almost Everything

by Matt Phillips

Quartz (September 17 2014)

As banks, technology giants and would-be disruptors such as Square scrummage over the payment system of the future, German consumers seem perfectly happy with the payment system of the past. Germany remains one of the most cash-intensive advanced economies on earth.

On average, wallets in Germany hold nearly twice as much cash – about $123 worth – as those in Australia, the US, France and Holland, according to a recent Federal Reserve report on how consumers paid for things in seven countries {1}. Roughly eighty percent of all transactions in Germany are conducted in cash. (In the US, it’s less than fifty percent.) And cash is the dominant form of payment there even for large transactions.

No one knows precisely why Germans have such a strong preference for cash, though survey data offer some hints. German respondents suggested that using cash makes it easier to keep track of their money and spending {2}.

“A glance into one’s pocket provides a signal about the extent of expenses and the remaining budget. With a large cash share of expenditures, the quality of the signal is high. We conjecture that for some consumers this signal is of value and hence they choose to use cash”, wrote ECB analysts who studied the phenomenon.

Other responses suggest Germans like the anonymity of cash, in keeping with their general enthusiasm for tightly protecting privacy.

But, of course, their attitudes toward currency must owe something to Germany’s tumultuous monetary history. During the Weimar-era hyperinflation that peaked in 1923, prices rose roughly a trillion-fold, as Germany attempted to pay its onerous war reparations with devalued marks.

The sheer lunacy of the sums involved make this everyone’s favorite hyperinflation.

At the end of it, a loaf of bread cost 428 billion marks, a kilogram of butter would run you roughly six trillion. Employers would halt work in the middle of morning to pay out bales of banknotes to workers – who sometimes collected them in laundry baskets – and the workday would be suspended for an hour or so as employees were given time to run around and purchase as much as they could before the money became worthless. (They would barter it later.) And, of course, people were using the worthless banknotes for all sorts of silly things, such as wallpaper, furnace fuel and kites.

But this wasn’t the last time Germany’s currency was rendered worthless in the twentieth century. After World War Two, the reichsmark was again in disarray. Hitler had largely financed the war by printing money, keeping inflation at bay through a uniquely fascist policy of strict price controls and violent threats. (“Inflation is a lack of discipline”, Hitler once said. “I’ll see to it that prices remain stable. That’s what my storm troopers are for.”)

During the postwar occupation, the Allies kept wage and price controls and rationing in effect. But more and more economic activity moved to the black market. Packs of Camels and Chesterfields, nylon stockings and Parker pens – which US servicemen stationed in Germany could easily buy at their bases – became de facto currencies.

The currency reform of June 20 1948, in which Germans were forced to convert their cash into the newly introduced deutsche marks at a rate of more than ten reichsmarks to the D-mark, was painful too, vaporizing more than ninety percent of an individual’s savings.

But the new currency helped pull hoarded goods back into shops and tamped down on the enervating effects of the black market. It was widely viewed as a tough, but necessary step that put Germany’s post-war economic resurgence in motion.

As such, the deutsche mark became a point of pride, first for West Germany, and in 1990 for those who lived in the former Communist east as well. (They were able to exchange their worthless ostmarks for deutsche marks at a generous rate of one-for-one.) It was with some consternation that Germany changed over to the euro in 2002.

So what role does this history play in the preference for cash?

One explanation is that, as researchers have found, memories of hyperinflation have quite a bit of staying power. People in countries that suffered banking crises quite sensibly often prefer to save in cash – though typically in foreign currencies such as US dollars – rather than put money in the bank. (Federal Reserve Bank of New York economists found that demand for US dollars rises for at least a generation in countries after they suffer a searing experience with high inflation.) And countries such as Bulgaria and Romania, which have recent histories of currency instability and financial crises, also are quite heavy users of cash.

But the real point isn’t that Germans love cash. It’s that – for the same historical reasons – they loathe debt. (Armchair anthropologists have also long noted that German word for debt – Schulden – comes from the word for guilt, Schuld.)

Levels of consumer debt in Germany are remarkably low. German aversion to mortgage debt is part of the reason why the country has some of the lowest homeownership rates in the developed world. Just 33% of Germans said they had a credit card back in 2011. And most of those hardly ever get used. In 2013, only eighteen percent of payments in Germany were made via cards, compared to fifty percent in France and 59% in the UK.

The national preference for cash, then, seems to be the flip side of aversion to debt, which, in turn, can be interpreted as a sign of deep-seated doubt about the future. (German businesspeople are also notorious for their pessimism about the future.) And fear of the future, of course, is rooted in the past.

In other words, the German tendency to settle up in cash undeniably reflects the fact that for much of the last century, Germany has been either on the brink of, in the midst of, or struggling to recover from, disaster. And traumas like that are bound to leave, if you’ll excuse the pun, a mark.

Selected Links:

{1} http://www.bostonfed.org/economic/wp/wp2014/wp1404.pdf

{2} http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1385.pdf


http://qz.com/262595/why-germans-pay-cash-for-almost-everything/

Categories: Uncategorized

It’s Official

Cash is Now Public Enemy Number One

First Major Offensive in War on Cash

by Don Quijones

Wolf Street (February 09 2016)

Terrorists are no longer public enemy number one. Nor are drug lords, people traffickers, arms dealers, cyber terrorists, or any other unsavory do-badder. Today, the biggest threat to global peace and security is physical cash, a means of exchange that has flourished for over 4,000 years but which now stands accused of being the world’s biggest enabler of criminality.

A Criminal’s Accomplice

The latest person to publicly highlight the deadly threat posed by cash is Peter Sands, the former CEO of the British bank Standard Chartered, who just published a report for Harvard Kennedy School of Government imploring central banks around the world to stop issuing high-denomination notes and bills. {1} They include the 500 euro note, the $100 bill, the 1,000 CHF note and the 50 GBP note.

“Such notes are the preferred payment mechanism of those pursuing illicit activities, given the anonymity and lack of transaction record they offer, and the relative ease with which they can be transported and moved”, the report warns. In other words, only criminals use cash. High-denomination notes, the report adds, “play little role in the functioning of the legitimate economy, yet a crucial role in the underground economy”.

Sands is no doubt a leading authority on the role of cash in the criminal economy, having led a company that schemed {2} with the government of Iran to avoid US sanctions and “hide from regulators roughly 60,000 secret transactions, involving at least $250 billion, and reaping Standard Chartered hundreds of millions of dollars in fees”.

That’s according to the New York State department, which in 2012 fined Standard Chartered close to a billion dollars for leaving the US financial system “vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity”. Two years later the bank’s anti-money-laundering systems were found wanting, and in 2015 it was once again accused of breaking Iran sanctions.

The fact that the bank compiled an extensive rap sheet under Sands’ watch does not in any way disqualify him from leading an investigation on the enabling role of cash in organized crime. On the contrary, it makes him the perfect point man. Sands is also a member of the Board of Directors of the Institute of International Finance, the global association of financial institutions, and chairman of their Special Committee on Effective Regulation.

First Major Offensive in War on Cash

In his report, Sands and his illustrious colleagues urge the world’s largest twenty economies to “take up the matter” – that is, broach the subject of banning large denominations of cash – at the next G20 summit in China. If the world’s leading policy makers follow through on the report’s advice, it will be the first major offensive in the global war on cash.

Sands is not the first senior banker to scapegoat cash for society’s ills. For years assorted bankers, politicians, technocrats and business leaders have waged an intensifying war of words against physical currency {3}.

A few weeks ago Norway’s biggest bank called for its outright abolition after guesstimating that as much as sixty percent of the country’s physical cash is out of the central bank’s control {4}. And for central banks, control is everything.

In a similar vein, John Cryan, the CEO of Deutsche Bank, predicted that cash “probably won’t exist” in ten years time. “There is no need for it, it is terribly inefficient and expensive”, Cryan said {5}.

This is news to most people in Germany, where approximately eighty of all transactions are conducted in cash (in the US and UK, it’s less than fifty percent). Cash is also the dominant form of payment for larger transactions, according to a recent survey. Does that mean that most Germans are, in the logic of the report’s findings, criminals? Obviously not! Or at least not yet! They just believe that using cash is a good way of keeping track of their personal finances as well as protecting their privacy and anonymity. Indeed, as the survey points out, the real point isn’t so much that Germans love cash. It’s that they loathe consumer debt.

The Real Reason for Offing Cash

Over the last few years every imaginable reason has been trotted out for doing away with cash, from creating a more inclusive financial system to making life easier, more comfortable and more productive. A Bloomberg article called cash just about every ugly name under the sun, including “dirty and dangerous, unwieldy and expensive, antiquated and so very analog” {7}.

However, the one reason for offing cash that hardly ever gets a mention is that it represents a limiting factor on central banks’ ability to continue their insane negative-interest-rate experiment, as Wolf Street reported last year:

Cash significantly limits central banks’ ability to continue conducting arguably the greatest financial heist of the modern age, that is, negative interest rate policy (NIRP). The only way that central banks can maintain negative interest rates ad infinitum is by abolishing cash altogether, as the Bank of England chief economist Andrew Hadlaine all but admitted. As long as cash exists, there’s no way of preventing depositors from doing the logical thing – that is, taking their money out of the bank and parking it where the erosive effects of NIRP can’t reach it. {8}

Cash also serves as a means of exchange in which the relevant rent seekers (banks, credit card companies, tech firms) are left out of the equation, unable to wet their beaks in commissions and fees and to collect the treasure of consumer data that comes with electronic payments. Throw in the nagging fact that in a world where physical currency continues to exist, government and corporations cannot track and trace your every movement, and it’s not hard to understand why cash is now public enemy number one in many of the world’s jurisdictions.

Then there’s the hundred-billion-dollar question. Read {9}.

Links:

{1} http://www.bbc.com/news/business-35519884

{2} http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9460928/Standard-Chartered-QandA-on-money-laundering-scandal.html

{3} http://wolfstreet.com/2015/04/25/don-quijones-war-on-cash-quotes-to-cashless-society/

{4} http://www.ibtimes.com/norways-biggest-bank-calls-country-stop-using-cash-2276140

{5} http://www.reuters.com/article/us-davos-meeting-banks-technology-idUSKCN0UY259

{6} http://qz.com/262595/why-germans-pay-cash-for-almost-everything/

{7} http://www.bloombergview.com/articles/2016-01-31/bring-on-the-cashless-future

{8} http://wolfstreet.com/2015/11/07/first-they-came-for-the-pennies-in-the-war-on-cash/

{9} http://wolfstreet.com/2016/01/30/the-big-oil-bailouts-begin/


http://wolfstreet.com/2016/02/09/cash-public-enemy-number-one/

Categories: Uncategorized

Pitchfork Time?

“Elites Have Lost Their Healthy Fear of the Masses”

by Tyler Durden

Zero Hedge (February 03 2016)

The following reader comment, posted originally in the Financial Times {1} is a must read, both for the world’s lower and endangered middle classes but especially the members of the one percent elite because what may be coming next could be very unpleasant for them.

 

Elites Have Lost Their Healthy Fear of the Masses

Sir,

Martin Wolf (“The losers are in revolt against the elite” {2}, Comment, January 27) and Andrew Cichocki (“Elites are listening to the wrong people” {3}, Letters, January 29) skirt the key issue: global elites have lost a healthy sense of fear.

From the time of the French Revolution until the collapse of communism, what successive generations of elites had in common was a sense of fear of what the aggrieved masses might do. In the first half of the nineteenth century they worried about a new Jacobin Terror, then they worried about socialist revolution on the model of the Paris Commune of 1871. One reason for the first world war was a growing sense of complacency among European elites. Afterwards they had plenty to worry about in the form of international communism, which remained a bogey until the 1980s.

With the collapse of the Soviet Union and the spread of global capitalism, today’s elites have lost the sense of fear that inspired a healthy respect for the masses among their predecessors. Now they can despise them as losers, as the aristocracy of ancien regime France despised the peasants who would soon be burning their chateaux. Surely today’s elites are going to learn how to fear before we see any reversal of the recent concentration of wealth and power.

 

 

Is it time for pitchforks to restore the natural orders of fear yet?

Links:

{1} http://www.ft.com/intl/cms/s/0/03b0c4f0-c5ee-11e5-b3b1-7b2481276e45.html

{2} http://www.ft.com/cms/s/0/135385ca-c399-11e5-808f-8231cd71622e.html

{3} http://www.ft.com/cms/s/0/71b829ce-c518-11e5-808f-8231cd71622e.html

http://www.zerohedge.com/news/2016-02-03/pitchfork-time-elites-have-lost-their-healthy-fear-masses

Categories: Uncategorized

“Negative Interest Rates Aimed at …

… Driving Small Banks Out of Business and Eliminating Cash”

by WashingtonsBlog (February 09 2016)

More than one-fifth of the world’s total GDP is in countries which have imposed negative interest rates, including Japan, the EU, Denmark, Switzerland and Sweden {1}.

Negative interest rates are spreading worldwide {2}.

And yet negative interest rates – supposed to help economies recover {3} – haven’t prevented Japan and Europe’s economies from absolutely tanking.

Nor have they even stimulated spending. As ValueWalk points out:

 

 

Japan has had ultra-low rates for years and its economy has been terrible. Trillions of debt in Europe now trades at negative interest rates and its economy isn’t exactly booming. Denmark, Sweden and Switzerland all have negative interest rates, but consumer spending isn’t going up there. In fact, savings rates have been going up in lockstep with the decrease in interest rates, exactly the opposite of what the geniuses at the various central banks expected.

Why is this happening? Simply, savers are scared. Lower interest rates have wrecked their retirement plans. Say you were doing some financial planning ten years ago and plugged in three percent from your savings account. Now its zero percent. You still have to plan for your retirement. Plug in zero percent. What happens to your planning now? Zero percent compounded for X years is zero percent. The math is simple. So in order to have your target savings at retirement, you need to save more, not spend more. But for some reason, the economists that run central banks around the world can’t see this. They are all stuck in their offices talking to one another and self-reinforcing this myth that they can drive spending up by reducing the rate of return on investments. Want to see consumer spending go up? Don’t wreck their savings plans so that they are too scared to spend. But that’s too simple. Instead, central banks use a chain of causation that doesn’t exist to try to create change three or four steps down the line. It hasn’t worked, and it won’t work. It isn’t in an individual’s self-interest to go out and spend their money on more “stuff” in order to spur economic growth. {4}

 

 

So what’s really going on? Why are central banks worldwide pushing negative interest rates?

Economics professor Richard Werner – the creator of quantitative easing – notes:

 

 

The experience of Switzerland [shows that] negative rates raise banks’ costs of doing business. The banks respond by passing on this cost to their customers. Due to the already zero deposit rates, this means banks will raise their lending rates. As they did in Switzerland. In other words, reducing interest rates into negative territory will raise borrowing costs!

If this is the result, why do central banks not simply raise interest rates? This would achieve the same result, one might think. However, there is a crucial difference: raised rates will allow banks to widen their interest margin and make their business more profitable. With negative rates, banks’ margins will stay low and the financial situation of the banks will stay precarious and indeed become ever more precarious.

As readers know, we have been arguing that the ECB has been waging war on the ‘good’ banks in the eurozone, the several thousand small community banks, mainly in Germany, which are operated not for profit, but for co-operative members or the public good (such as the Sparkassen public savings banks or the Volksbank people’s banks). The ECB and the EU have significantly increased regulatory reporting burdens, thus personnel costs, so that many community banks are forced to merge, while having to close down many branches. This has been coupled with the ECB’s policy of flattening the yield curve (lowering short rates and also pushing down long rates via so-called “quantitative easing'”. As a result banks that mainly engage in traditional banking, that is, lending to firms for investment, have come under major pressure, while this type of “QE” has produced profits for those large financial institutions engaged mainly in financial speculation and its funding.

The policy of negative interest rates is thus consistent with the agenda to drive small banks out of business and consolidate banking sectors in industrialised countries, increasing concentration and control in the banking sector.

It also serves to provide a (false) further justification for abolishing cash. And this fits into the Bank of England’s surprising recent discovery that the money supply is created by banks through their action of granting loans: by supporting monetary reformers, the Bank of England may further increase its own power and accelerate the drive to concentrate the banking system if bank credit creation was abolished and there was only one true bank left – the Bank of England. This would not only get us back to the old monopoly situation imposed in 1694 when the Bank of England was founded as a for-profit enterprise by private profiteers. It would also further the project to increase control over and monitoring of the population: with both cash and bank credit alternatives abolished, all transactions, money creation and allocation would be implemented by the Bank of England. {5}

 

 

If this sounds like a “conspiracy theory”, the Financial Times argued in 2014 that central banks would be the real winners from a cashless society:

 

 

Central bankers, after all, have had an explicit interest in introducing e-money from the moment the global financial crisis began …

The introduction of a cashless society empowers central banks greatly. A cashless society, after all, not only makes things like negative interest rates possible, it transfers absolute control of the money supply to the central bank, mostly by turning it into a universal banker that competes directly with private banks for public deposits. All digital deposits become base money. {6}

 

 

Links:

{1} http://www.washingtonsblog.com/2016/01/negative-interest-rates-sign-desperation.html

{2} http://www.zerohedge.com/news/2015-12-08/canada-just-hinted-negative-interest-rates-are-coming

{3} http://www.foxbusiness.com/features/2016/02/09/former-fed-president-urges-negative-interest-rates.html

{4} http://www.valuewalk.com/2016/02/negative-interest-rates-wont-you-take-me-to-funkytown/?all=1

{5} https://professorwerner.wordpress.com/2016/02/09/negative-interest-rates-and-the-war-on-cash/

{6} http://ftalphaville.ft.com/2014/01/22/1748152/the-time-for-official-e-money-is-now/
Related Posts

* http://www.washingtonsblog.com/2016/01/negative-interest-rates-sign-desperation.html

* http://www.washingtonsblog.com/2015/11/hang-onto-your-wallets-negative-interest-the-war-on-cash-and-the-10-trillion-bail-in.html

* http://www.washingtonsblog.com/2008/12/the-next-shoe-to-drop-pension-payments.html

* http://www.washingtonsblog.com/2015/07/eu-visa-slams-ukrainians-after-february-2014-ukrainian-coup.html

* http://www.washingtonsblog.com/2009/04/can-the-swiss-model-of-alternative-currency-help-americans-and-others-weather-the-economic-crisis.html

* http://www.washingtonsblog.com/2012/05/this-is-the-first-time-in-history-that-all-central-banks-have-printed-money-at-the-same-time-and-its-failing-miserably.html

http://www.washingtonsblog.com/2016/02/economics-professor-negative-interest-rates-aimed-driving-small-banks-business-eliminating-cash.html

Categories: Uncategorized

The Anti-Empire Report #143

by William Blum

http://williamblum.org (February 05 2016)

Is Bernie Sanders a Socialist?

“Self-described socialist” … How many times have we all read that term in regard to Vermont senator Bernie Sanders? But is he really a socialist? Or is he a “social democrat”, which is what he’d be called in Europe? Or is he a “democratic socialist”, which is the American party he has been a member of (DSA – Democratic Socialists of America)? And does it really matter which one he is? They’re all socialists, are they not?

Why does a person raised in a capitalist society become a socialist? It could be because of a parent or parents who are committed socialists and raise their children that way. But it’s usually because the person has seen capitalism up close for many years, is turned off by it, and is thus receptive to an alternative. All of us know what the ugly side of capitalism looks like. Here are but a few of the countless examples taken from real life:

* Following an earthquake or other natural disaster, businesses raise their prices for basic necessities such as batteries, generators, water pumps, tree-removal services, et cetera.

* In the face of widespread medical needs, drug and health-care prices soar, while new surgical and medical procedures are patented.

* The cost of rent increases inexorably regardless of tenants’ income.

* Ten thousand types of deception to part the citizens from their hard-earned ages.

What do these examples have in common? It’s their driving force – the profit motive; the desire to maximize profit. Any improvement in the system has to begin with a strong commitment to radically restraining, if not completely eliminating, the profit motive. Otherwise nothing of any significance will change in society, and the capitalists who own the society – and their liberal apologists – can mouth one progressive-sounding platitude after another as their chauffeur drives them to the bank.

But social democrats and democratic socialists have no desire to get rid of the profit motive. Last November, Sanders gave a speech at Georgetown University in Washington about his positive view of democratic socialism, including its place in the policies of presidents Franklin D Roosevelt and Lyndon B Johnson. In defining what democratic socialism means to him, Sanders said: “I don’t believe government should take over the grocery store down the street or own the means of production”. {1}

I personally could live with the neighborhood grocery store remaining in private hands, but larger institutions are always a threat; the larger and richer they are the more tempting and easier it is for them to put profit ahead of the public’s welfare, and to purchase politicians. The question of socialism is inseparable from the question of public ownership of the means of production.

The question thus facing “socialists” like Sanders is this: When all your idealistic visions for a more humane, more just, more equitable, and more rational society run head-first into the stone wall of the profit motive … which of the two gives way?

The most commonly proposed alternative to both government or private control is worker-owned cooperatives or publicly owned enterprises managed by workers and consumer representatives. Sanders has expressed his support for such systems and there is indeed much to be said about them. But the problem I find is that they will still operate within a capitalist society, which means competition, survival of the fittest; which means that if you can’t sell more than your competitors, if you can’t make a sufficient net profit on your sales, you will likely be forced to go out of business; and to prevent such a fate, at some point you may very well be forced to do illegal or immoral things against the public; which means back to the present.

Eliminating the profit motive in American society would run into a lot less opposition than one might expect. Consciously or unconsciously it’s already looked down upon to a great extent by numerous individuals and institutions of influence. For example, judges frequently impose lighter sentences upon lawbreakers if they haven’t actually profited monetarily from their acts. And they forbid others from making a profit from their crimes by selling book or film rights, or interviews. The California Senate enshrined this into law in 1994, one which directs that any such income of criminals convicted of serious crimes be placed into a trust fund for the benefit of the victims of their crimes. It must further be kept in mind that the great majority of Americans, like people everywhere, do not labor for profit, but for a salary.

The citizenry may have drifted even further away from the system than all this indicates, for American society seems to have more trust and respect for “non-profit” organizations than for the profit-seeking kind. Would the public be so generous with disaster relief if the Red Cross were a regular profit-making business? Would the Internal Revenue Service allow it to be tax-exempt? Why does the Post Office give cheaper rates to non-profits and lower rates for books and magazines which don’t contain advertising? For an AIDS test, do people feel more confident going to the Public Health Service or to a commercial laboratory? Why does “educational” or “public” television not have regular commercials? What would Americans think of peace-corps volunteers, elementary and high-school teachers, clergy, nurses, and social workers who demanded well in excess of $100 thousand per year? Would the public like to see churches competing with each other, complete with ad campaigns selling a New and Improved God?

Pervading all these attitudes, and frequently voiced, is a strong disapproval of greed and selfishness, in glaring contradiction to the reality that greed and selfishness form the official and ideological basis of our system. It’s almost as if no one remembers how the system is supposed to work any more, or they prefer not to dwell on it.

It would appear that, at least on a gut level, Americans have had it up to here with free enterprise. The great irony of it all is that the mass of the American people are not aware that their sundry attitudes constitute an anti-free-enterprise philosophy, and thus tend to go on believing the conventional wisdom that government is the problem, that big government is the biggest problem, and that their salvation cometh from the private sector, thereby feeding directly into pro-free-enterprise ideology.

Thus it is that those activists for social change who believe that American society is faced with problems so daunting that no corporation or entrepreneur is ever going to solve them at a profit carry the burden of convincing the American people that they don’t really believe what they think they believe; and that the public’s complementary mindset – that the government is no match for the private sector in efficiently getting large and important things done – is equally fallacious, for the government has built up an incredible military machine (ignoring for the moment what it’s used for), landed men on the moon, created great dams, marvelous national parks, an interstate highway system, the peace corps, social security, insurance for bank deposits, protection of pension funds against corporate misuse, the Environmental Protection Agency, the National Institutes of Health, the Smithsonian, the GI Bill, and much, much more. In short, the government has been quite good at doing what it wanted to do, or what labor and other movements have made it do, like establishing worker health and safety standards and requiring food manufacturers to list detailed information about ingredients.

Activists have to remind the American people of what they’ve already learned but seem to have forgotten: that they don’t want more government, or less government; they don’t want big government, or small government; they want government on their side. Period.

Sanders has to clarify his views. What exactly does he mean by “socialism”? What exactly is the role the profit motive will play in his future society”?

Mark Brzezinski, son of Zbigniew, was a post-Cold War Fulbright Scholar in Warsaw:

 

 

I asked my students to define democracy. Expecting a discussion on individual liberties and authentically elected institutions, I was surprised to hear my students respond that to them, democracy means a government obligation to maintain a certain standard of living and to provide health care, education and housing for all. In other words, socialism. {2}

 

We Should Never Forget

The modern, educated, advanced nation of Iraq was reduced to a virtual failed state … the United States, beginning in 1991, bombed for much of the following twelve years, with one dubious excuse after another; then, in 2003, invaded, then occupied, overthrew the government, tortured without inhibition, killed wantonly … the people of that unhappy land lost everything – their homes, their schools, their electricity, their clean water, their environment, their neighborhoods, their mosques, their archaeology, their jobs, their careers, their professionals, their state-run enterprises, their physical health, their mental health, their health care, their welfare state, their women’s rights, their religious tolerance, their safety, their security, their children, their parents, their past, their present, their future, their lives … More than half the population either dead, wounded, traumatized, in prison, internally displaced, or in foreign exile … The air, soil, water, blood, and genes drenched with depleted uranium … the most awful birth defects … unexploded cluster bombs lying in wait for children to pick them up … a river of blood running alongside the Euphrates and Tigris … through a country that may never be put back together again … “It is a common refrain among war-weary Iraqis”, reported the Washington Post in 2007, that things were better before the US-led invasion in 2003″. {3}

The United States has not paid any compensation to Iraq.

The United States has not made any apology to Iraq.

Foreign policy is even more sensitive a subject in the United States than slavery of the black people and genocide of the Native Americans. The US has apologized for these many times, but virtually never for the crimes of American foreign policy. {4}

In 2014, George W Bush, the man most responsible for this holocaust, was living a quiet life in Texas, with a focus on his paintings. “I’m trying to leave something behind”, he said. {5}

Yes, he has certainly done that – mountains of rubble for one thing; rubble that once was cities and towns. His legacy also includes the charming Islamic State. Ah, but Georgie Boy is an artiste.

 

 

We need a trial to judge all those who bear significant responsibility for the past century – the most murderous and ecologically destructive in human history. We could call it the War, Air and Fiscal Crimes tribunal and we could put politicians and CEOs and major media owners in the dock with earphones like Eichmann and make them listen to the evidence of how they killed millions of people and almost murdered the planet and made most of us far more miserable than we needed to be. Of course, we wouldn’t have time to go after them one by one. We’d have to lump Wall Street investment bankers in one trial, the Council on Foreign Relations in another, and any remaining Harvard Business School or Yale Law graduates in a third. We don’t need this for retribution, only for edification. So there would be no capital punishment, but rather banishment to an overseas Nike factory with a vow of perpetual silence.

– Sam Smith {6}

 

 

On March 2 2014 US Secretary of State John Kerry condemned Russia’s “incredible act of aggression” in Ukraine. “You just don’t in the 21st century behave in 19th century fashion by invading another country on completely trumped up pretext”.

Iraq 2003 was in the 21st century. The pretext was completely trumped up. Senator John Kerry voted for it. Nice moral authority you have there, John.

On the same occasion, concerning Ukraine, President Obama spoke of “the principle that no country has the right to send in troops to another country unprovoked”. {7] Do our leaders have no memory or do they think we’ve all lost ours?

Does Obama avoid prosecuting the Bush-Cheney gang because he wants to have the same rights to commit war crimes? The excuse he gives for his inaction is so lame that if George W had used it people would not hesitate to laugh. On about five occasions, in reply to questions about why his administration has not prosecuted the like of Bush, Cheney, Rumsfeld, Wolfowitz, et al for mass murder, torture and other war crimes, former law professor Obama has stated: “I prefer to look forward rather than backwards”. Picture a defendant before a judge asking to be found innocent on such grounds. It simply makes laws, law enforcement, crime, justice, and facts irrelevant. Picture Chelsea Manning and other whistleblowers using this argument. Picture the reaction to this by Barack Obama, who has become the leading persecutor of whistleblowers in American history.

Noam Chomsky has observed:

 

 

If the Nuremberg laws were applied, then every post-war American president would have been hanged.

 

 

It appears that the German and Japanese people only relinquished their imperial culture and mindset when they were bombed back to the stone age during World War Two. Something similar may be the only cure for the same pathology that is embedded into the very social fabric of the United States. The US is now a full-blown pathological society. There is no other wonder drug to deal with American-exceptionalism-itis.

Notes:

{1} https://berniesanders.com/democratic-socialism-in-the-united-states/

{2} Los Angeles Times (September 02 1994)

{3} Washington Post (May 05 2007)

{4} William Blum, Rogue State: A Guide to the World’s Only Superpower (2005), Chapter 25

{5} New York Times (September 16 2014)

{6} http://prorev.com/

{6} Reuters (March 03 2014)

 

 

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Essays and Speeches: http://williamblum.org/essays

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http://williamblum.org/aer/read/143

Categories: Uncategorized

Our Dysfunctional Monetary System

by Steve Keen, originally posted at Forbes.com {1}

Zero Hedge (February 07 2016)

The great tragedy of the global economic malaise is that it is caused by a shortage of something that is essentially costless to produce: money.

Both banks and governments can produce money at physically trivial costs. Banks create money by creating a loan, and the establishment costs of a loan are miniscule compared to the value of the money created by it – of the order of $3 for every $100 created.

Governments create money by running a deficit – by spending more on the public than they get back from the public in taxes. As inefficient as government might be, that process too costs a tiny amount, compared to the amount of money generated by the deficit itself.

But despite how easy the money creation process is, in the aftermath to the 2008 crisis, both banks and governments are doing a lousy job of producing the money the public needs, for two very different reasons.

Banks aren’t creating money now because they created too much of it in the past. The booms that preceded the crisis were fuelled by a wave of bank-debt-financed speculation on some useful products (the telecommunications infrastructure of the internet, the DotCom firms that survived the DotCom bubble) and much rubbish (the Liar Loans that are the focus of The Big Short {2}). That lending drove private debt levels to an all-time high across the OECD: the average private debt level is now of the order of 150% of GDP, whereas it was around sixty percent of GDP in the “Golden Age of Capitalism” {3} during the 1950s and 1960s – see Figure 1.

Figure 1: The private debt mountain that has submerged commerce

In the aftermath of the Subprime bubble, credit-money creation has come to a standstill across the OECD. In the period from 1955 till 1975, credit grew at 8.7% per year in the United States; from 1975 till 2008, it grew at eight percent per year; since 2008, it has grown at an average of just 1.5% per year. The same pattern is repeated across the OECD – see Figure 2. Globally, China is the only major country with booming credit growth right now, but that will come crashing down (this probably has already started), and for the same reason as in the West: too much credit-based money has been created already in a speculative bubble.

Figure 2: Credit growth is anaemic now, and will remains so as it has in Japan for 25 years

Japan, of course, got mired in this private debt trap long before the rest of the world succumbed. As Figure 1 shows, its private debt bubble peaked in 1995, and since then it’s had either weak or negative credit growth, so that its private debt to GDP level is now in the middle of the global pack. Economic growth there has come to a standstill since: Japan’s economy grew at an average of 5.4% a year in real terms from 1965 till 1990, when its crisis began; since then, it has grown at a mere 0.4% a year.

That gives us a simple way to perform a “what if?”. What if the rest of the OECD is as ineffective at escaping from the private debt trap as Japan has been? Then the best case scenario for global credit growth is that it will match what has happened since Japan “hit the credit wall” in 1990.

We can guess at that by shifting Japan’s credit growth data forward eighteen years, since its crisis began in 1990 while the rest of the world landed in the trap in 2008. Figure 3 shows the result of that exercise – here measuring credit growth as a percentage of GDP – and that predicts an average growth of credit from now till 2035 of 0.5% of GDP a year.

It’s worse still when you consider that most of Japan’s post-crisis credit growth occurred in the first half decade or so after its crisis. Take those early post-crisis years out, and the average rate of growth of credit in Japan has been minus three percent of GDP a year. Rather than adding to the money supply, banks have been reducing it for the last twenty years.

Figure 3: Predicting future OECD credit growth on the basis of Japan’s record for the last 18 years.

What about governments? Here we run into a problem with ideology – and bad metaphors. Inspired by visions of a no-government, free market idyll, conservative politicians from Reagan and Thatcher on have promoted restraints on government spending, in the hope that slashing government expenditure will allow the more efficient and dynamic private sector to fill the void. So the pressure has been on to reduce the size of the government sector, to avoid running deficits, and preferably to run surpluses, on the argument that the government is “like a household” and should “live within its means”.

This vision would be all very well if we lived in a barter-based economy, but we don’t. In such an economy, exchanges could occur in kind – your pigs for my computers. But in the real world in which we live, trading pigs for computers – or anything else – requires money. And a government deficit, when it is financed by the Central Bank buying Treasury Bonds, is the other way that money is created. The fetish for small government and budget surpluses means that the government has ignored this task, and effectively abrogated money creation to the private banking sector.

This strategy had no obvious negative consequences while the private banks were on a credit-money-creation binge – as they were effectively from the end of World War Two until 2008. But once private debt began to dwarf GDP and the growth of credit slowed to a trickle, the inherent stupidity of this policy became apparent. In their attempt to promote the private sector, conservative proponents of small government are actually strangling it.

As someone who spent two years warning about this crisis before it happened, and another eight years diagnosing it (and proposing remedies {4} that would, I believe, be effective, if only banks and governments together would implement them), I find this dual idiocy incredibly frustrating.

Rather than understanding the real cause of the crisis, we’ve seen the symptom – rising public debt – paraded as its cause. Rather than effective remedies, we’ve had inane policies like QE, which purport to solve the crisis by inflating asset prices when inflated asset prices were one of the symptoms of the bubble that caused the crisis. We’ve seen Central Banks pump up private bank reserves in the belief that this will encourage more bank lending when (a) there’s too much bank debt already and (b) banks physically can’t lend out reserves.

How much longer can governments (and banks) continue with failed policies?

On Japan’s record, the answer appears to be “indefinitely”. Japan’s latest inane attempt to reflate its economy was announced just last week: it will now charge negative interest rates on the excess reserves that Japanese banks now hold in their accounts at the Central Bank. The only direct impact of this policy will be to drive up asset prices yet again – and it might even lead to private banks increasing interest rates on loans to the private sector, as has happened in Switzerland {5}. The net effect on the real economy will at best be trivial, and it will do naught to reduce Japan’s private debt burden, which is the nub of its stagnationist problem.

We are hostage to a dysfunctional monetary system, run by people who don’t understand how it works in the first place. No wonder the global economy is in the doldrums, and finance markets are having dyspeptic attacks.

Links:

{1} http://www.forbes.com/sites/stevekeen/2016/02/06/our-dysfunctional-monetary-system/#30e9c3e96a35

{2} https://en.wikipedia.org/wiki/The_Big_Short_(film)

{3} https://en.wikipedia.org/wiki/Post%E2%80%93World_War_II_economic_expansion

{4} http://www.debtdeflation.com/blogs/manifesto/

{5} http://wolfstreet.com/2015/12/16/perverse-unpredictable-effects-of-negative-interest-rates-mortgage-rates-soar-in-switzerland/

http://www.zerohedge.com/news/2016-02-07/steve-keen-exposes-our-dysfunctional-monetary-system

Categories: Uncategorized

Feds Don’t Need Crypto Backdoors to Spy

Your TV and Toothbrush Will Do

Internet of Things Opens Government Access to Real-time, Recorded Communications.

by David Kravets

Ars Technica (February 02 2016)


Who needs crypto backdoors when Barbie can spy on you?
Mike Licht

The so-called “going dark” problem – which various government officials claim will be the death knell to the US because Silicon Valley won’t bake crypto backdoors into its wares – is greatly overblown. That’s because crime fighters are not in the dark, at least technologically, and are now presented with a vast array of spy tools at their disposal. Specifically, modern espionage is piggybacking on the Internet of Things (IoT) tools, from televisions to toasters, that enable wanton spying.

“The audio and video sensors on IoT devices will open up numerous avenues for government actors to demand access to real-time and recorded communications”, according to a Berkman Center for Internet & Society report published Monday.

The report added:

 

Law enforcement or intelligence agencies may start to seek orders compelling Samsung, Google, Mattel, Nest, or vendors of other networked devices to push an update or flip a digital switch to intercept the ambient communications of a target. These are all real products now. If the Internet of Things has as much impact as is predicted, the future will be even more laden with sensors that can be commandeered for law enforcement surveillance; and this is a world far apart from one in which opportunities for surveillance have gone dark. It is vital to appreciate these trends and to make thoughtful decisions about how pervasively open to surveillance we think our built environments should be – by home and foreign governments, and by the companies who offer the products that are transforming our personal spaces.

 

The report, “Don’t Panic. Making Progress on the ‘Going Dark’ Debate”, (PDF) was produced by scholars and former and current intelligence officials. It highlights that there’s plenty of avenues afoot for the authorities to spy on you – crypto backdoors notwithstanding.

The report continues:

 

Appliances and products ranging from televisions and toasters to bed sheets, light bulbs, cameras, toothbrushes, door locks, cars, watches and other wearables are being packed with sensors and wireless connectivity. Numerous companies are developing platforms and products in these areas. To name but a few, Phillips, GE, Amazon, Apple, Google, Microsoft, Tesla, Samsung, and Nike are all working on products with embedded IoT functionality, with sensors ranging from gyroscopes, accelerometers, magnetometers, proximity sensors, microphones, speakers, barometers, infrared sensors, fingerprint readers, and radio frequency antennae with the purpose of sensing, collecting, storing, and analyzing fine-grained information about their surrounding environments. These devices will all be connected to each other via the Internet, transmitting telemetry data to their respective vendors in the cloud for processing.

 

Regarding televisions, the report specifically noted the recent brouhaha with Samsung’s smart TVs:

 

In February 2015, stories surfaced that Samsung smart televisions were listening to conversations through an onboard microphone and relaying them back to Samsung to automatically discern whether owners were attempting to give instructions to the TV. A statement published in Samsung’s privacy policy instructed users to “be aware that if your spoken words include personal or other sensitive information, that information will be among the data captured and transmitted to a third party through your use of the Voice Recognition”.

 

Let’s not forget Google’s Chrome, Mattel’s Barbie, and IP video cameras:

 

Similarly, Google’s Chrome browsing software supports voice commands using the onboard microphone in a laptop or desktop computer. The feature is activated when a user states the phrase “OK Google”, and the resource intensive voice processing takes place on Google’s remote servers. Even children’s toys are beginning to possess these features. In April 2015, Mattel introduced “Hello Barbie”, an interactive doll capable of responsive speech, which is accomplished by recording children’s interactions with the doll through a microphone, processing it in the cloud, and sending verbal responses through a speaker on the doll. IP video cameras have also risen in popularity in the last several years. Devices like the Nest Cam record high resolution video with a wide-angle lens camera broadcast over the Internet to account holders. Users can tune into the recording from Nest’s website or through an app on their phone, and a camera will send an alert if it detects motion or an unusual noise. The Nest Cam can also exchange data and interact with other devices, such as Nest’s thermostats and smoke detectors, which themselves contain sensors and microphones.

 

The report concluded that

 

… the “going dark” metaphor does not fully describe the future of the government’s capacity to access the communications of suspected terrorists and criminals. The increased availability of encryption technologies certainly impedes government surveillance under certain circumstances, and in this sense, the government is losing some surveillance opportunities. However, we concluded that the combination of technological developments and market forces is likely to fill some of these gaps and, more broadly, to ensure that the government will gain new opportunities to gather critical information from surveillance.

 

_____

 

David Kravets is the senior editor for Ars Technica. Founder of TYDN fake news site. Technologist. Political scientist. Humorist. Dad of two boys. “Been doing journalism for so long I remember manual typewriters with real paper”.
@dmkravets on Twitter

 

Further Reading:

 

http://arstechnica.com/security/2016/01/how-to-search-the-internet-of-things-for-photos-of-sleeping-babies/

http://arstechnica.com/security/2015/12/internet-connected-hello-barbie-doll-gets-bitten-by-nasty-poodle-crypto-bug/

 

Original URL of this article:

 

http://arstechnica.com/tech-policy/2016/02/feds-dont-need-crypto-backdoors-to-spy-your-tv-and-toothbrush-will-do/

Categories: Uncategorized
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